California Punitives by Horvitz & Levy

  • California Court of Appeal vacates punitive damages awards of $3 million and $275,000 due to insufficient evidence (Wilson v. So. Cal. Edison; Union Central Cold Storage v. RDM)

    The California Court of Appeal issued two opinions this week vacating punitive damages awards based on insufficient evidence.

    In the first case, the Court of Appeal (Second District, Division Seven) issued an unpublished opinion vacating a $275,000 punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s financial condition. We have noted before that a surprising number of punitive damages awards are vacated on that basis every year.  Often a plaintiff will present evidence of the defendant’s assets or income, but fail to present any evidence of liabilities or expenses.  Amazingly, the plaintiff in this case “presented no relevant evidence” whatsoever, according to the court.

    In the second case, the Court of Appeal (Second District, Division Four) issued a published opinion vacating a $3 million punitive damages award because the plaintiff failed to prove that the defendant engaged in punishable conduct. The plaintiff claimed that Southern California Edison failed to maintain an electrical substation, causing stray electrical currents to enter her home.  Plaintiff presented evidence that Edison’s management was aware of the problem of stray electricity at the plaintiff’s property.  But their awareness arose only in the context of the company’s efforts to mitigate the problem to ensure that there was no danger to anyone on the property.  Thus, plaintiff failed to prove that the corporate management acted with malice, oppression, or fraud as Civil Code section 3294 requires.

  • Georgia judge reduces $47.9 million punitive damages award to $250,000 under statutory cap, plaintiff vows to challenge constitutionality of cap

    Last month we reported on a huge $47.9 million punitive damages award out of Georgia, in a case involving a plaintiff who was severely burned in a gas explosion in an apartment he leased from the defendants.  As noted in our earlier report, Georgia law caps punitive damages at $250,000 in most cases.  It therefore comes as no surprise to see this story in the Daily Report, saying that the judge has reduced the punitive damages award to $250,000.

    According to the story, the trial judge rejected an attack on the constitutionality of the statute.  The plaintiff is planning to appeal that ruling and has already lined up appellate counsel, who says he will  take the case to the Georgia Supreme Court.  Plaintiffs haven’t had much luck with those arguments in most states, but they succeeded in the Missouri Supreme Court just last year.  This case will be worth watching if it goes up on appeal.

  • Federal judge in Connecticut awards $27.5 million in punitive damages in trade secrets case

    Law360 reported on January 21 (and it escaped my notice until now) that U.S. District Judge Michael P. Shea of the District of Connecticut awarded $27.5 million in punitive damages in an antitrust and trade secrets case.

    According to the Law 360 article, a jury awarded $35 million in compensatory damages, which Judge Shea founded to be excessive.  He ordered a conditional new trial on the issue of compensatory damages, subject to an agreement by the plaintiff (MacDermid Printing Solutions) to reduce the award to $20 million.  But the defendant (Cortron Corp.) probably didn’t spend much time celebrating when they learned that Judge Shea also granted the plaintiff’s motion for punitive damages and awarded $27.5 million.

  • Missouri state senator seeks to amend state constitution to restore cap on punitive damages

    Last year the Missouri Supreme Court struck down Missouri’s statutory cap on punitive damages as unconstitutional. Today the Missouri Chamber of Commerce reports that state senator Ron Richard has introduced a bill to amend the Missouri constitution to reinstate the cap.  Not surprisingly, the chamber of commerce supports the proposal.

    Related post:

    Missouri Supreme Court strikes down punitive damages cap as unconstitutional

  • California Court of Appeal reinstates $1.2 million punitive damages award in sexual harassment case (Shank v. CRST Van Expedited)

    The plaintiff in this case, a former employee of a trucking company, claimed that her supervisor repeatedly subjected her to unwanted sexual advances.  She obtained a jury verdict for $391,000 in compensatory damages, $1.17 million in punitive damages against her former employer, and $3,500 in punitive damages against her individual supervisor.

    The employer filed post-trial motions to challenge the verdict.  The trial court agreed that the plaintiff failed to prove that the employer acted with malice, oppression, or fraud.  As a result, the court granted judgment notwithstanding the verdict (JNOV) on the issue of punitive damages against the employer, wiping out the jury’s $1.17 million award.

    The plaintiff appealed, arguing that the trial court erred in granting the JNOV motion.  The California Court of Appeal (Fourth Appellate District, Division Three) agreed with the plaintiff in this unpublished opinion.

    The court began its analysis by noting that the supervisor unquestionably engaged in malice and oppression; throughout a 28-day training period, he made numerous unwanted sexual advances towards the plaintiff.

    The question then became whether the employer could be punished for ratifying the supervisor’s misconduct.  The Court of Appeal concluded that the company’s human resources a director was a managing agent within the meaning of Civil Code section 3294, and that the human resources director ratified the supervisor’s conduct by failing to investigate the plaintiff’s complaints.  That failure to investigate was directly contrary to the company’s written policies for responding to and preventing sexual harassment.

    The employer argued on appeal that the company did not need to investigate in this particular instance because because the plaintiff did not complain about the harassment until after she left the company.  The Court of Appeal rejected that argument, holding that “there is no applicable law or evidence that once an employee leaves an investigation is unnecessary.”

    The Court of Appeal then reversed the trial court’s JNOV, reinstating the full amount of the jury’s punitive damages award.  That will be a bitter pill for the corporation’s board of directors, who probably thought they had protected the company from this type of award by adopting a policy that required a thorough investigation of any harassment claims.

     

  • Georgia jury awards $47.9 million in punitive damages

    The Daily Report of Fulton County, Georgia is reporting that a jury there has awarded $72.8 million to a school teacher who was burned after a gas line in his apartment exploded. He sued his landlord, claiming that the explosion was caused by the landlord’s violation of building codes.  The verdict consists of $17.9 million in compensatory damages, $47.9 million in punitive damages, and $7 million in attorney fees. 

    A Georgia statute limits punitive damages to $250,000 except in products liability cases, cases involving a specific intent to harm, and cases where the defendant was under the influence of drugs or alcohol.  None of those exceptions would seem to apply here.

  • Another proposed bill to eliminate federal tax deductions for payments of punitive damages

    Senator Patrick Leahy (D-VT), a member and former chairman of the Senate Judiciary Committee, issued a press release today announcing that he has introduced a bill that would prevent taxpayers from deducting payments of punitive damages as business expenses.

    The proposed bill is entitled the No Tax Writeoffs for Corporate Wrongdoers Act.  The title is a bit misleading, because the actual text of the proposal would apply to all taxpayers, not just corporations.  Individuals get hit with punitive damages too, as many of the reports on this blog attest.  I’m not a tax lawyer (though my first law job was with the IRS), but my understanding is that current law permits self-employed individual taxpayers to deduct payments of punitive damages as business expenses.

    Several other lawmakers have proposed the idea of eliminating the deductibility of punitive damages in recent years, both in California and at the federal level.  None of the previous proposals were adopted, although President Obama has voiced his support for the idea.

    UPDATE: For those you might want to track the progress of this proposal, be aware that it has been designated as Senate Bill 169.

    Related posts:

    Bill to eliminate tax deductions for punitive damages appears to be dead
     
    Assembly approves bill to prevent tax deduction of punitive damages; Senate not expected to act until August
     
    Committee on Appropriations approves bill to prohibit deductions of punitive damages

    Another proposal to prohibit California taxpayers from deducting punitive damages

    Assembly rejects proposal to eliminate tax deductions for punitive damages
     
    Proposed California bill would prevent tax deductions for punitive damages

    Proposal to eliminate [federal] tax deduction for punitive damages still alive

    Senate Adopts Proposal to Eliminate Tax Deduction for Punitive Damages
     
    More from Prof. Markel on Tax Policy and Punitive Damages

    “Taxing Punitive Damages”

    Proposed [federal] legislation would eliminate tax deduction for punitive damages

    Obama administration proposes to eliminate tax deduction for payment of punitive damages  

  • Court of Appeal vacates $405,000 punitive damages award in discrimination case, finding it duplictative of statutory penalty (Paletz v. Adaya)

    This unpublished opinion contains an unusually lengthy discussion of an issue that rarely arises in California punitive damages cases: whether punitive damages can be awarded in a case in which the plaintiff has already recovered a statutory penalty.

    The general rule on this issue is well established: if a defendant is liable for a statutory penalty (such as treble damages) for a particular act of misconduct, the defendant cannot be subjected to punitive damages for the same act.  Allowing both a statutory penalty and punitive damages would be duplicative, so the plaintiff must choose one or the other.

    Notwithstanding this general rule, courts sometimes permit both statutory penalties and punitive damages in the same case, either because (a) the particular statutory language in question shows that the Legislature intended to authorize duplicative penalties, or (2) the case involves separate acts of misconduct that merit separate punishment.

    In this case, the plaintiff alleged that the defendant hotel discriminated against her because she is Jewish.  She recovered compensatory damages and statutory penalties under California’s Unruh Civil Rights Act, and she also recovered $405,000 in punitive damages.

    The Court of Appeal (Second Appellate District, Division Three) vacated the punitive damages, finding that this case did not fit within either of the exceptions to the general rule against duplicative punishment.  The court first concluded that the provision of the Unruh Act that authorizes treble damages is punitive in nature, and that nothing in the statute indicates that the Legislature intended to permit duplicative damages.  The court also went on to say that the statutory penalty and the punitive damages were awarded for the same misconduct, and therefore the defendant could be subjected only to one punishment.  The plaintiff gets to keep the statutory penalties, but not the punitive damages.

  • Second Circuit uses supervisory authority to hold $5 million punitive damages award excessive (Turley v. ISG Lackawanna)

    The Second Circuit issued an interesting opinion today that illustrates how a federal appellate court can apply two independent standards when reviewing a punitive damages award for excessiveness.

    In this employment discrimination case, a federal jury in New York awarded a total of $1.32 million in compensatory damages and $24 million in punitive damages, broken down between individual and corporate defendants.  The district court concluded that the punitive damages were excessive, and granted a new trial conditioned on the plaintiff’s acceptance of a reduction of the punitive damages award to a total of $5 million.  The plaintiff accepted the reduction and the defendant appealed.

    On appeal, the Second Circuit affirmed the judgment in all respects except for the amount of punitive damages.  The court began its discussion of that issue by noting that it was required to review the excessiveness of punitive damages pursuant to the federal appellate courts’ supervisory authority over the trial courts.  Such authority requires that reviewing courts “exercise relatively stringent control over the size of punitive damages,” separate and apart from any obligation to review the award under constitutional due process standards.

    The court then went on to explain that federal courts should exercise their common law supervisory authority first, before considering constitutional standards.  Following that approach, the court concluded that the $5 million punitive damages award in this case was still excessive.  The court explained that the award is disproportionate both to the $1.32 million compensatory damages award and to the amount of punitive damages awarded in other comparable cases.  Ultimately, the court determined that any amount in excess of a 2:1 ratio would be excessive.

    Having settled on a 2:1 ratio as the maximum permissible under common standards, the court considered whether due process concerns might require an even further reduction.  The court concluded that, in light of the extremely egregious nature of the defendants’ conduct, a 2:1 ratio would pass muster under the Constitution.  The court expressly declined to decide whether constitutional principles might permit a higher ratio than 2:1 on the facts of this case.

    This case stands in contrast to the Ninth Circuit’s recent decision in the Arizona v. ASARCO case, in which the en banc court reviewed the punitive damages award only under federal due process standards, without even mentioning its separate obligation to review the amount of the award under federal common law.

  • “Judicial Hellholes” report ranks California at number two, citing recent punitive damages decision

    The American Tort Reform Foundation’s released its annual “Judicial Hellholes” report yesterday.  As usual, ATRF does not have kind things to say about the administration of civil justice in California. 

    The report names California as the second worst jurisdiction in the nation in terms of fairness to defendants in civil litigation (behind the New York City asbestos docket).  The report offers a variety of reasons for that assessment, most of which are beyond the scope of this blog (e.g., that our courts have made it too easy for plaintiffs to “rifle the deep pockets of corporate defendants” in public nuisance actions, asbestos lawsuits, disability-access lawsuits, etc.) 

    The report intersects with the focus of this blog when discussing Izell v. Union Carbide, in which the Court of Appeal recently affirmed an $18 million punitive damages award in a published decision.  The report highlights the dissenting opinion of Justice Kitching which, as we have noted, could attract the attention of the California Supreme Court as well.  (The discussion of Izell appears on page 14 of the report.)